Addition to income cannot be made merely based on Valuation Report if no defect found in books of assessee

Addition to income cannot be made merely based on Valuation Report if no defect found in books of assessee

If books of accounts are realistic , reliable and without any fault,  then and not rejected by the AO then there comes  no requirement to call for valuation report from registered Valuer in the case when assessee has made addition towards buildings/properties .

In respect of investment made in property, there can be only two methods to find out the correct position-(i) examination of books of account which have been maintained properly, and (ii) valuation report. If the assessee has maintained proper books of account and all details are mentioned in such books of account which are duly supported by vouchers and no defects are pointed out and the books of account which are duly  supported by vouchers and no defects are pointed out and also the books are not rejected, the figures shown therein have to be followed. The valuation report can be taken into consideration only when the books of account are not reliable or are not supported by proper vouchers or the Income-tax Officer has no option but to rely on the valuation report which is a document prepared by an expert and is admissible, but there must be a finding by the Income-tax Officer that the books of account maintained by the assessee are defective or are not reliable. There may be a marginal difference in the actual investment and the report of the Valuation Officer for a number of reasons as the valuation report is prepared  on the basis of norms prescribed by the  C.P.W.D. for the construction of buildings and the difference may be with regard to quality of the materials, etc.

Here is the judgement of the Hon,ble Rajasthan High Court (200 ITR 788) , CIT Vs Pratap Singh , Amrosingh , Rajendra Singh , and Deepak Kumar for reference on the same concept . (11.03.1992)

 During the relevant assessment year 1971-72, for which the previous year ended on March 31, 1971, the assessee made certain additions and alterations to its building and the total expenditure incurred according to the books of account maintained by the assessee was Rs.  3,83,320. The Income-tax Officer referred the matter to the Valuation Cell and the Valuation Officer estimated the cost of additions and alterations at Rs. 4,48,400. The assessment was reopened and additions made to the income of an amount of Rs. 55,780. The Tribunal, however, deleted the addition. On a reference:

Held, that there was no dispute that the assesses maintained proper books of account and the same had been accepted in the past and no defects were pointed out in the books. The expenses were fully supported by vouchers. Full details were also mentioned in respect of each item in the books. Simply  because the valuation report was of a higher amount the books could not be said to be unreliable. The Tribunal was, therefore, justified in deleting the addition of Rs. 55,780.

What we find from the judgement

Investment in property is made by the assesse towards construction . Determination of the correct amounts spent in making addition and alteration to building . Proper books are maintained by the assessee . Expenditure is fully supported by the vouchers . Books of Accounts are not rejected by the ITO . Preference to valuation cell not valid where accounts are not rejected . Addition to the income could not be made on the basis of the report of the valuation officer .